Deux ex machina — “God from the machine” — is a plot device that ancient Greek play authors used to save their characters from tight spots and hopefully give them happy endings. Anthony Menendez, CFE, told the Wednesday closing session attendees that was how Halliburton solved a fraudulent accounting problem he’d reported — just drop a benign explanation from the sky, end the production and close the curtain. Finis.
But Menendez raised the curtain, stepped onto the stage and said, “Wait a second —this play isn’t even in the third act yet.”
When he was the director of technical accounting research with Halliburton in 2005, the company asked him to approve a bill-and-hold sale — “a contract to allow and recognize revenue on equipment that they weren’t actually selling but were ultimately going to use months later,” said Menendez, the recipient of the 2016 Cliff Robertson Sentinel Award. First awarded to Oscar-Winning actor Cliff Robertson in 2003, the ACFE's Sentinel Award carries the inscription "For Choosing Truth Over Self." This award is bestowed annually on a person who, without regard to personal or professional consequences, has publicly disclosed wrongdoing in business or government. He was tracking millions of dollars worth of massive machinery for oil and gas exploration.
Menendez said the company pushed back and told him his predecessor routinely approved these bill-and-hold sales. “But how was that possible?” Menendez asked. “I checked the accounting policy that it made it very clear that you weren’t supposed to do that.” SAB 101 from the Securities and Exchange Commission forbids it.
He spent months of research, debate and investigation, and he said he couldn’t find anything to support the recognition of revenue on equipment sitting in a Halliburton warehouse.
Menendez sent a memo to his boss that showed his findings and expressed his concerns. He said his boss told him, “ ‘We agree your conclusions are appropriate. We need to get this thing fixed posthaste and get back within the lines that are appropriate. We need to repair whatever damage is done.’ … I thought he would fix the issue. But unfortunately they never did,” Menendez said.
Menendez filed a confidential complaint with the SEC in November 2005 because he believed that a company commits fraud when it knowingly violates accounting and SEC rules and misleads the investing public. And then on Feb. 4, 2006, he sent an email to alert the audit committee of Halliburton’s board of directors about the accounting problem. He left Halliburton in 2006 and brought a whistleblower claim under the anti-retaliation provisions of the Sarbanes-Oxley Act.
In September 2008, an administrative law judge determined that Halliburton hadn’t retaliated against Menendez. Even though he’d never had any legal training, he then represented himself in appealing the case to the Administrative Review Board (ARB). In September 2011, the ARB overturned the original trial judge. Halliburton appealed to the Fifth Circuit Court of Appeals, but the panel ruled that the company had retaliated against Menendez for blowing the whistle. Menendez had only asked for $1,000, but the court awarded him $30,000.
After almost nine years, Menendez finally got to the third act without the aid of a Halliburton Deux ex machina. He became that rare creature — The Man who Beat Halliburton.